Labcorp Holdings Inc. (NYSE:LH) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Labcorp Holdings' shares before the 27th of February to receive the dividend, which will be paid on the 12th of March.

The company's next dividend payment will be US$0.72 per share. Last year, in total, the company distributed US$2.88 to shareholders. Looking at the last 12 months of distributions, Labcorp Holdings has a trailing yield of approximately 1.2% on its current stock price of US$249.85. If you buy this business for its dividend, you should have an idea of whether Labcorp Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Labcorp Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Labcorp Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Labcorp Holdings paid out a comfortable 32% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 22% of its free cash flow last year.

It's positive to see that Labcorp Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Labcorp Holdings's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Labcorp Holdings's dividend payments are broadly unchanged compared to where they were three years ago.

To Sum It Up

Should investors buy Labcorp Holdings for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Labcorp Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Labcorp Holdings for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Labcorp Holdings and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.